What Is Supply Chain Management And Why Is It Important | 3 mins read

What is Supply Chain Management and Why is it Important?

what is supply chain management and why is it important
Jin Hyun

By Jin Hyun

The supply chain sums up the flow of goods and services required to deliver consumer products, while supply chain management is all about the action of streamlining this vital flow and creating a seamless system that maximizes profits.

Good supply chain management is crucial to a company's success. In fact, a Deloitte survey from 2014 found that 79% of companies with top-performing supply chains achieved superior revenue growth compared to average industry rates. Add this to statistics that show roughly 50% of new businesses fail in the first five years of operation and it becomes increasingly clear how vital supply chain performance is to success.

Benefits of an Efficient Supply Chain

From the delivery of raw materials to fulfilling customer orders, the supply chain has a huge impact on operations efficiency and profitability. By simply improving their supply chain management practices, businesses can enjoy the following benefits.

  • Ensures customer satisfaction - Good supply management means a company's chances of experiencing stockouts and failing to meet expected delivery diminishes substantially.
  • Cuts down on operating costs - An efficient supply chain means expensive inventory isn't being held up in warehouses for longer than necessary, where it racks up storage fees.
  • Creates a healthier financial position - Shaving small costs here in there in the supply chain can lead to big savings further down the line. This can be as simple as changing packaging or swapping raw materials for a product that is more cost-effective.
  • Rise in production and cash flow - When a product is delivered faster, it also means an invoice can be paid sooner. Good supply management can lead to quicker product flow which directly leads to greater company revenue.

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Strategies for Better Supply Chain Management

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Air-tight inventory management combined with an excellent supply chain plan will make this vital aspect of the business operate smoothly. Explore some of the most commonly used supply chain management strategies.

1. Create a demand-driven business operating model
Implementing a series of efficient planning tools that assist in prediction and contingency can work wonders in minimizing risks such as manufacturing errors. Staying ahead of the game means a business can quickly move products, change pricing, and limit or grow supply as needed. Cloud-based supply chain technologies allow companies to see where the inventory is in real-time, creating true visibility and assisting the business in making data-driven stock decisions.

2. Create dynamic planning capabilities for a flexible supply chain
To meet changing demands, an agile supply chain is crucial. It's also essential to make constant supply chain adjustments in response to sudden changes in the market. Creating dynamic planning capabilities build better visibility, supply chain collaboration, and analytics.

3. Ensure the business goals are in sync with the supply chain
Broken connections between finance, strategy, and operations make accurate forecasting difficult. Providing integrated planning repairs those connections by bringing people, processes, and technological aspects of the company together to ensure forecasting systems are aligned with other crucial aspects of the entire operation.

4. Make environmental sustainability a key part of supply chain operations
There are two very good reasons to place environmental considerations at the heart of all operations the competitive edge it gives a company and the cost and carbon-footprint reduction it enables. A green strategy enhances production efficiency, supplier management skills, and attractiveness to employees and clients alike, all while reducing inventory-related costs and waste.

5. Develop reliable vendor relationships
Manufacturers may erect inventory buffers if an air-tight supply model hasn't been implemented. This can be costly to a company and lead to unforeseen supply shortages. Inventory and ordering software that provides analytics and application processes can be utilized here to keep manufacturing operations in sync and integrated with customer and demand planning processes.

Quick-thinking, flexible, and innovative supply chain management is more crucial than ever to a company's success. It can be beneficial to adopt these strategies into everyday business operations to benefit the bottom line and keep a business competitive.

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